Are Big Oil Companies to Blame?
Rex Tillerson, the CEO of ExxonMobil, was recently interviewed by Matt Lauer on the Today Show. Mr. Lauer asked what he thought was a knock-out question, “Would Exxon Mobil be willing to lower profits over the summer to help out in this time of need and crisis?” MR. Tillerson’s response speaks more to his understanding of business and economics, and exposed how little Matt knows about the same. He said, “Well, that’s not the business. We’re in the business to make money.”
Here’s why that was such an intelligent response, from The Wall Street Journal:
Price manipulation? Price gouging? Those are fine fighting words to Americans paying more than $3 a gallon for gas. But when it comes to explaining today’s gasoline prices, they have little meaning — and Messrs. Bush, Frist and Hastert should know better.
“Price gouging” is a common law concept that might apply if, say, a gasoline station in New Orleans charged $10 a gallon to drivers fleeing from Hurricane Katrina. “Price manipulation” is a less-precise term that seems to suggest oil companies have power to set gasoline prices. Neither reflects the situation facing most Americans today, who can choose from multiple, competing suppliers of gasoline. The oil and gasoline markets aren’t perfect. But if the U.S. government wants to go after companies with pricing power, oil companies fall pretty far down the list.
Most experts agree that today’s gasoline prices — unlike those of three decades ago — are the result largely of supply and demand. Supply is tight and threatened by security concerns and political instability in oil-producing nations. Meanwhile, demand from places like China and India is booming.
Moreover, high prices, as painful as they may be, aren’t just a problem, but also a solution.
Since Jimmy Carter donned his cardigan sweater three decades ago, U.S. policy makers have tried all sorts of gimmicks to reduce dependence on foreign oil, to no avail. Oil imports have risen from a third of U.S. oil consumption to 60%. The reason: Oil was cheap. It’s symptomatic that the Arizona resident who complained on the “Today” show about spending $50 to fill his tank was driving an SUV.
As gasoline prices rise — and everyone becomes convinced they will stay high — people will figure out how to consume less, oil firms will invest more, and alternative energy will become more common. That is just Economics 101 — a course that most participants in this debate seem to have missed.
As for those who worry the merger of Exxon and Mobil might have created an industry that is too concentrated — well, stop worrying. Exxon Mobil still has only about 8% of the retail gasoline market in the U.S. And its size is a plus overseas, giving it the clout it needs to push for access to government-controlled oil reserves and the financial heft it needs to undertake multibillion investment projects. That’s all good for U.S. energy security.
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May 12th, 2006 at 9:19 am
Amen!
I can’t stand the Democrats (and now Republicans!) who think that ExxonMobile or some other “big oil” company can wave a fairy godmother wand and make gas prices go down by “lowering profits”.
Matt Lauer is either an idiot (doubtful) or disingenious (quite likely). ExxonMobile only makes something like 8 or 9 cents a gallon anyways. So even if they lowered profits, Matt “I don’t lower my salary to $0 help anyone” Lauer would save a dollor or two every time he filled up.
May 12th, 2006 at 10:24 am
Well he was obviously disingenious - trying to score popularity points just like Bill Frist and George Bush. I think it’s interesting they picked this topic to try to politicize to score the GOP some points before this year’s wave of elections, cause it’s a pretty weak attempt. They tried a $100 gas tax refund, and now the price-gouging efforts to expose the “corruption of the industry”.
My favorite part of the article was the line, “It’s symptomatic that the Arizona resident who complained on the “Today†show about spending $50 to fill his tank was driving an SUV”. It just shows you how much Americans are really concerned about it - not much at all. Sure, it would be nice to have cheaper gas, but not many people are actually changing their lifestyle because of it. Gas is still half as expensive here as it is throughout most of Europe.
To me it’s just another in the growing list of ideas to “fix” the problem without really fixing the problem. Like Bill O’Reilly’s idea to boycott gas for a day. Everyone would just fill up the day before or the day after, and what would it accomplish even if it did work? Then there’s the email circulating that’s calling for a boycott of one oil company (exxonmobil, since it’s the biggest) - that way they would be forced to lower prices to lure people back to them, and then because they lowered prices everyone would have to lower prices. Both ideas are full of so many holes, and void of any economic sense.
May 13th, 2006 at 12:59 pm
The Senate Democrats have prepared a fabulous video staged in front of a pricing board for exxonmobil gas. It’s hilarious to hear Senators Barbara Boxer (CA-D), Maria Cantwell (WA-D), Dick Durbin (IL-D), Debbie Stabenow (MI-D), and Charles Schumer (NY-D) rant and rave about how “money [is] going straight from our credit cards at the gasoline pump, straight into the board room.”
democrats.senate.gov/energy
On the surface it sounds like a very convincing argument you want to sympathize with, especially as Debbie Stabenow explains how they are “on the side of families, and businesses” in this fight. Barbara Boxer says, “we need to crack down on these excess profits, and this manipulation of supply.”
Here’s a good idea that will solve everyone’s problems, right? Why don’t we let the government take over the gas pumps, and give everyone free gas - it will just be included in our taxes! It’s perfect, then we don’t have to worry about any one company that has only 8% of the marketshare setting their prices so high that the CEO is getting a huge retirement check.
June 12th, 2006 at 2:04 pm
Look at what commentray Brad is making. We are not changing our lifestyle!
Take the bus, carpool, switch out your SUV for a scooter where feasible and see what happens. The truth is, it obviously hasn’t hit most of us hard enough to make us do anything. We just really wouldn’t mind lower gas prices again.